Prospectus Approvals Will Drive Further Downsizing

The federal leased property inventory has been getting smaller since the end of 2012 and indications are that the trend will continue. One need only look at prospectus approvals to be certain of this because, while there are slightly more than 200 leases with annual rent large enough to exceed the prospectus threshold, those leases comprise about 1/3 of GSA-leased square footage. Congress approves the maximum square footage allowed under each of these lease actions and over the past several years legislators have been imposing their authority to boost space utilization and force downsizing.

One feature of prospectuses is that they are accompanied by a “housing plan” that provides the current square footage versus the square footage sought for approval in the prospectus. This is true even where several leases are consolidated into a single location–the square footage of all current locations is tallied up and compared to the requested lease authorization.

The chart above shows the square footage of prospectuses submitted to Congress each calendar year (if either chamber of Congress approved a smaller square footage in its prospectus resolution then that square footage is applied instead). The blue bars show the square footage of net growth among those prospectuses programmed for expansion and the red bars show the net reduction of those prospectuses programmed for downsizing.

The results are pretty clear: In recent years, GSA’s largest lease requirements are programmed in nearly all cases to result in a net reduction of space. In the 2014-2016 period, average space reduction in the prospectus tranche is almost 700,000 RSF annually. Yet, as I write this article only about 1/5 of the lease actions submitted in the last three years have been executed and commenced. As many of these leases have not yet commenced, any inventory reduction is not yet reflected in GSA’s current leasing statistics. Therefore, the downsizing we are already experiencing is, unfortunately, just the beginning.

Looking forward, we can expect further space reduction–that process is on rails. Further, it should be noted that several of the prospectuses that do NOT result in substantial downsizing are for short term actions to allow GSA to eventually shift tenants from leased to owned inventory. For example, prospectuses were submitted last year to accommodate ICE (104,934 RSF) and FEMA (303,546 RSF) for short term extensions while those agencies wait on space slated to be constructed at DHS’ St Elizabeths campus.

Of course, every cloud has its silver lining and in this case it is that these prospectus leases, once downsized, will generally re-locate to newer buildings for longer terms. While “lease-construct” projects are increasingly rare, GSA’s occupancy of long-term space in existing or newly built speculative buildings is increasing. Prospectus downsizing will further fuel that trend.